On Wednesday, TD (TSX:TD) Cowen analysts have downgraded WK Kellogg (NYSE:K) shares, listed on the New York Stock Exchange (NYSE:KLG), from Hold to Sell, adjusting the price target downward to $16.00 from the previous $18.00. The downgrade comes amid concerns about the company's performance and future outlook.
Analysts at TD Cowen cited several reasons for the downgrade. They have reduced their forecast for WK Kellogg's fiscal year 2025 EBITDA to $289 million, which is slightly below the consensus estimate of $290 million. The company's significant market share losses in the fourth quarter have been highlighted as a key issue, alongside what is seen as an uninspiring new product pipeline.
"The company's significant market share losses in 4Q and its rather uninspiring new product pipeline suggests to us that the spin-off has yet to improve the company's competitiveness in the structurally challenged breakfast cereal category," the analysts said.
The analysts also pointed to WK Kellogg's history of tense labor relations as a potential risk. This concern is particularly relevant to the company's ongoing $500 million supply chain rationalization project. According to TD Cowen, the difficulties associated with closing facilities and transitioning production lines are likely to be exacerbated by the strained labor relations, making the process more complex than it may appear.
In other recent news, WK Kellogg Co has amended its credit agreement, extending the availability of a $250 million loan facility until June 30, 2025. The extension does not alter any other terms of the original agreement and is seen as a strategic financial move to ensure continued access to capital. The extended credit facility may support the company's operational and strategic initiatives, although the specific uses for the loan have not been disclosed.
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